While many investors and traders are focused on artificial intelligence counters, precious metals like gold and silver, or cryptocurrencies set for recovery, we are going contrarian and turning our attention elsewhere: bonds, specifically bond exchange traded funds (ETFs).
Although we remain opportunistic with other asset classes and sectors, taking positions when prices are favourable, the main portion of our upcoming portfolio additions will be allocated to bond ETFs. This may seem surprising, but from a holistic portfolio perspective, this contrarian approach plays an important role in rebalancing, which is essential for diversification.
Currently, bonds make up 12.7% of our portfolio. As previously discussed here, our target allocation for bonds is 15%, so we are aiming to increase our holdings nearer to that percentage figure.
We prefer bond ETFs over individual bonds because they offer easier management, greater diversification thanks to exposure to different issuers, better liquidity since ETFs are easily traded on markets, and lower transaction costs by dealing with one ETF instead of multiple individual bonds.
That said, we also hold some individual bonds such as Singapore Savings Bonds, which we intend to keep until maturity in order to benefit from their higher interest rates in specific tranches.
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